Draw the graph · Macro · Phillips curve
Unemployment benefits are extended
Drag a curve sideways, or use its arrows. A curve you do not move is a curve you are saying stays put. Make each shift clear enough that a reader could see it.
Show the model answer
Short-run Phillips curve shifts right. Long-run Phillips curve shifts right.
Longer benefit periods raise frictional unemployment, the time workers spend between jobs, so the natural rate rises. The long-run Phillips curve, which stands at the natural rate, shifts right. The short-run Phillips curve is anchored at the natural rate for the given expected inflation, so it shifts right with it.
The natural rate of unemployment is higher, with no lasting change in inflation.
Common mistake. A common error is to shift only the SRPC, or to treat the change as a movement along it. A lasting rise in unemployment at unchanged inflation is a change in the natural rate.
More phillips curve prompts
Go deeper
Lesson: Types of Unemployment